In recent months, there has been much speculation about how Google (GOOG) could attack Microsoft's (MSFT) highly profitable Office franchise, as the search giant has experimented with its own versions of word processing, spreadsheet, and other software programs. Now, Google is firing a direct shot at Microsoft Office by introducing a free, integrated suite of personal productivity applications.
On Aug. 28, the Mountain View (Calif.) search-engine company unveiled Google Apps for Your Domain, a bundle of programs—e-mail, schedule management, instant messaging, Internet phone calling, and Web site creation—integrated for small businesses. The company could eventually add its hosted spreadsheet and word-processing applications to the bundle, though it has no formal plans to do so, says a Google spokesperson.
The Google programs are all available over the Web, so companies don't have to go through the process of installing them on office computers, unlike Microsoft Office.
SLOWING GROWTH. Google's move may be more marketing than product innovation, but it strikes directly at one of Microsoft's longtime cash cows, the Office suite, which includes Outlook for E-mail and schedule management, Communicator for instant messaging and voice, and Publisher and Sharepoint Designer for Web site creation.
In the fiscal year ended June 30, Microsoft's Information Worker division, which consists almost entirely of Office, generated $8.3 billion in operating income on $11.8 billion in sales, making it the company's second-largest and second most profitable business. However, the division's growth has slowed recently. Operating income grew 3% in the most recent fiscal year, down from 8% the previous year.
A battle over productivity applications has been heating up between Google and Microsoft over the past year. Microsoft went on the offensive last November when it announced Office Live, a suite of hosted applications that offers many of the same features as Google Apps for Your Domain, such as hosted E-mail, a personalized domain name, and Web site creation tools (see BusinessWeek.com, 11/2/05, "Why Microsoft is Going 'Live'").
POINT, COUNTERPOINT. Also last November, Microsoft took aim at Google's core search business by announcing Windows Live Search, an application for scouring the Web and PC desktops.
Google made a rapid series of countermoves. In February, it launched Gmail for Your Domain, a free hosted E-mail service with personalized domain names. It's a clear competitor to Microsoft's Live Office E-mail offering. In March, Google bought Upstartle, maker of the hosted word-processing application Writely, an alternative to Microsoft Word.
In June, Google launched hosted spreadsheet application Google Spreadsheets, a competitor to Microsoft Excel (see BusinessWeek.com, 6/9/06, "The Next Big Thing: Spreadsheets?" and BusinessWeek.com, 6/28/06, "Watch Your Back, Microsoft Office"). In combination, the moves left little doubt that Google intends to enter the productivity-apps market.
TARGETING SMALL BIZ. Google Apps for Your Domain packs together and integrates the company's productivity applications in an offering clearly aimed at small businesses, the same customers Microsoft is targeting with Live Office. As with Live Office, Google Apps will come in free and paid versions. A basic version is available now for free, and a premium version with advanced features will be available later this year for a fee.
This announcement comes the same day that Google won a deal to work with eBay (EBAY). Google will provide the auction site with search advertising for eBay's sites outside of the U. S., and the two companies also will cooperate on "click to call" ads that connect potential online buyers to customer-service reps at selling companies.
Hibbard is a correspondent in BusinessWeek's Silicon Valley bureau
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